Flight from the Front Line: Geopolitical Risk, Distance, and Capital Flow Dynamics

Martin Hodula, Jan Janku and Simona Malovana

Research Briefs from Czech National Bank, Research and Statistics Department

Abstract: This brief shows that geopolitical shocks transmit through a spatial exposure channel linked to countries' geographic distance from conflict zones. Using monthly data for 40 advanced and emerging economies over 1995-2024 and local-projection methods, we document a clear distance gradient. Equity flows reallocate rapidly toward economies farther from the conflict, while debt flows adjust more gradually. Exchange rates respond immediately: proximate currencies depreciate and distant currencies appreciate. Geographic proximity thus independently shapes international spillovers, influencing both anticipatory exchange-rate movements and the subsequent redistribution of global capital.

Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:rbrief:2026/01

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